UIGEA Ways and Means hearing (update)

The legalisation of US internet gambling inevitably raised its head in Wednesday’s House Ways and Means Committee hearing on Representative Jim McDermott’s HR 4976 proposal to tax online gaming in the United States.

Congressman Barney Frank, the author of HR2267, a bill seeking to legalise the pastime, spoke passionately about the rights of the player, whilst opponents were equally vociferous in their condemnation and concerns over internet gambling.

John Pappas, Executive Director of the Poker Players Alliance grassroots advocacy group was first off the mark in getting a media release out on the discussions surrounding McDermott’s Internet Gambling Regulation and Tax Enforcement Act of 2010.

"Today's hearing underscores the increasing Congressional interest in a licensed and regulated online gaming environment,” Pappas said in a press statement. “While the robust consumer protections provided by regulation are the biggest selling point, in the current economic environment, additional tax revenue derived from a licensed industry is certainly appealing as well.

"It is important to note that this bill would not levy a new tax on poker players. Rather, it requires each licensed Internet gambling operator to pay a licensing fee – nothing would be deducted from a player's deposit. Individuals would be required to pay annual income taxes on their net winnings, just like players who collect winnings in land-based casinos do today.

"The PPA is working to remove language from the bill that would fine players who play on unlicensed sites as we firmly believe the unlicensed sites should bear the full consequences of not obtaining a license in the U.S.

"We thank the Committee for holding this important hearing today. We look forward to a successful mark up of legislation to license and regulate online gaming in July in the House Financial Services Committee."

According to the Dow Jones news agency, Congressman Frank confirmed that he planned to bring a bill legalising online gambling before his panel in July for lawmakers to consider.

Frank, one of the biggest congressional advocates for overturning the law passed by Republicans in 2006, said he hoped the bill could be approved by the House this year.

The feisty Democrat, who also chairs the powerful House Financial Services Committee, testified before the Ways and Means Committee, arguing that the government has no business telling adults they can't gamble online. He has also noted that the regulations that are set to go into place June 1 would compel banks to determine which financial transactions are illegal under the law.

Frank said that once the regulations are implemented next week, he expected the banks would begin to complain loudly about being told they have to police the online gambling industry.

Turning to his own bill, Frank said that HR 2267 is designed to protect consumers without restricting their freedom.

“I have always believed that it is a mistake to tell adults what to do with their own money. Some adults will spend their money foolishly, but it is not the purpose of the Federal Government to prevent them legally from doing it,” he said.

“We should ensure that they have appropriate consumer protections and information, but otherwise allow people to pursue activities that they enjoy which do not harm others. As John Stuart Mill said in his essay, On Liberty in 1869:

“The only freedom which deserves the name is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their efforts to obtain it. Each is the proper guardian of his own health, whether bodily, or mental or spiritual. Mankind are greater gainers by suffering each other to live as seems good to themselves, than by compelling each to live as seems good to the rest.”

Frank noted that he had the strong support of some 70 political co-sponsors, including Representative Ron Paul of Texas; and the Ranking Republican and former Chairman of the Homeland Security Committee, Peter King.

He argued that American consumers who wish to gamble online are currently without safeguards against fraud, identity theft, underage and problem gambling and money laundering. Some operators adhere to rigorous regulatory regimes in foreign jurisdictions, but U.S. customers have no local recourse if they have a problem.

“And, more to the point for today’s hearing, billions of dollars in taxes – both under existing law and those that would be established under Mr. McDermott’s bill – remain uncollected,” Congressman Frank asserted. “Enacting these bills would bring this industry out of the shadows, benefit consumers and ensure that all of the revenue does not continue to exclusively benefit offshore operators.”

That money would be put to better use in the U.S., he claimed, saying that it could create thousands of jobs for people who would be employed by licensed gambling sites.

"Regulation and taxation have proven to be a better policy for our country when it comes to alcohol," McDermott said. "The same is true for online gambling."

"Driving Internet gambling offshore has been a policy failure,” said McDermott “The GAO has called Internet gambling borderless, and I think it's time for Congress to stop pretending that the future won't come."

McDermott estimated that taxing the industry would generate $42 billion, with the bulk coming from income taxes on winning players. Other revenues would be derived by a tax of 0.25 percent on all wagers, which is consistent with current gambling tax law, and a two percent tax on player deposits at the federal level.

The bill would also give states and tribes the opportunity to share in that deposit tax at a rate of up to six percent on those same deposits in lieu of all other taxes. Combined with existing state income taxes, McDermott estimated states and tribes would raise $30 billion over 10 years.

The Associated Press news agency commented that realistically, supporters realise that Congress is highly unlikely to pass legislation this year on the subject, but they hope to lay the groundwork for the future with hearings like the Ways and Means Committee discussion.

Frank has stressed that his legislation prohibits operators from accepting sports bets as well as bets initiated in states or tribal lands that prohibit that particular type of Internet gambling.

Opponents of the proposed legislation predictably called the hearing a waste of time.

"It's pretty clear to me that Congress is not about to legalise, let alone legalise and tax Internet gambling," said Californian Republican Representative Wally Herger. "There are far more pressing issues we should be focused on."

Another confirmed online gambling opponent, Virginia Republican Representative Bob Goodlatte, told lawmakers that almost all the nation's attorneys general have opposed similar legislation in the past.

"Unfortunately, financial ruin and tragedy are not uncommon among online bettors," Goodlatte alleged.

Democratic Representative Shelley Berkley from Nevada, said online betting has never been more popular, despite efforts to stop it. She said she supports efforts to legalise it, which would allow Nevada casinos to participate in the online market, but she can't support the taxes McDermott proposed.

"Participation in the Internet gambling market by reputable U.S. companies will ensure that U.S. players are able to choose operators based on their integrity and security, and not just their availability," Berkley said.

Fellow Nevadan, Republican Representative Dean Heller, agreed with her position against the tax proposal.

"Common sense regulation of gaming on the Internet will protect American consumers, and I believe it will create at least 32 000 jobs," Berkley said, but then added, "I am unable at this time to support this special tax called for by Mr. McDermott's bill. The issue of taxation and legalization are separate and distinct."

One politician who appeared to have been swayed by the positive arguments for regulation rather than prohibition was the Republican Representative from Oregon, Earl Blumenauer, who after the hearing renounced his stand against online gambling, saying he had learned it was hypocritical, and citing the need for revenue sources.

Blumenauer, who admitted he had voted for the UIGEA when it was rushed through a late night session of Congress attached to a security bill in 2006, said he will now support the regulation of Internet gaming, making him the 70th politician to sign up to Barney Frank’s HR 2267.

In a press statement, Blumenauer said that allowing state lotteries, US horse racing and fantasy sports leagues to conduct gambling business over the Internet made it unreasonable and inequitable to legislate against online casinos and Internet poker.

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